Bed Stuy Developer Creates Bed Stuy Real Estate Investment Fund, Video Featuring Locals

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As readers here may recall, Seth Weissman of Weissman Equities has been buying up and renovating mixed-use buildings in east Bed Stuy with a goal toward revitalizing the neighborhood by bringing new retail into long-empty spaces, much as his firm did in the Pines on Fire Island. Now he’s created an investment company called CityShares whose first fund will be focused on Bed Stuy specifically, he told us.

To advertise the fund, he’s created a video about Bed Stuy that features local residents and business owners Brownstoner readers will recognize, including cafe owner Superfrench, Halstead agent and preservationist Morgan Munsey, and Seasons garden center owner Deborah Young. Small-time investors with $100,000 or more to invest can buy shares in the $5 million fund, which he will use to buy properties.

The fund is officially launching this week, and will close in July. Weissman already has about 20 investors, he said. Once the money is in place, CityShares will use it to buy eight to 10 buildings in the neighborhood, both mixed-use and multifamily. The focus will on cash flow from rent and improving cash flow by making improvements over time, he said.

There will be quarterly distributions; the fund will hold buildings for seven to 10 years. Weissman said he anticipates distributions of 6 to 8 percent. “We’re targeting 12 percent annual returns — that’s total return,” he said. “We would look for 6 to 8 percent dividends and the balance would come through refinancing and, eventually, sales.”

CityShares plans to close a Harlem fund in the fall, followed by funds for Bushwick and Crown Heights. The idea for CityShares came from talking to people about what Weissman Equities does, and realizing from these conversations that there is no way to invest in New York real estate beyond buying a home, rental property or commercial property. “You have to write a big check, it’s a lot of management work, and limited diversification if you own one or two properties,” he said.

A Crain’s article about the venture noted other investment-backed real estate companies are exiting the rental market, but Weissman said he believes there is still plenty of upside left in New York City.

Other investment-backed firms that buy commercial property in New York have come under fire for business plans that require kicking out rent regulated tenants and raising rents to market rates to succeed.

“We do not do any of that,” Weissman said. “We are long term investors. We’re making an investment in buildings and neighborhoods. We’re not kicking out any tenants.” At two of Weissman Equities’ recently acquired buildings in Bed Stuy, 426 Bainbridge had been empty for years, and 616 Halsey was delivered with two rent regulated tenants in place and four empty apartments. The firm renovated the empty units, transforming the two-bedroom apartments into three-bedroom ones, and rented them at market rates. A long term retail tenant in the building, which is pictured above, a liquor store, will stay in place, and the firm is opening up another storefront in the building that had long been boarded up. The firm also employs local vendors — Seasons is doing all the landscaping for its buildings in Bed Stuy.

Previously an employee of Goldman Sachs and hedge fund Perry Capital, Weissman serves on his community board in Manhattan, where “we do a lot of affordable housing work,” he said.

“We are making investments in buildings, and we believe they will appreciate in value, that’s a component of what we’re trying to do, but we’re trying to do it in the right way,” he said.

Weissman Equities Coverage [Brownstoner]

10 Comment

  • I think this is a wonderful way to provide new businesses a leg up, as well as a great investment opportunity.

  • brownstoneshalfoff

    30 year old kid projecting 12% annual returns over 7-10 years pegged to ever increasing rents and ultimately sales comps. The beginning of the end. Ponzi up!

    • Love the concept but those return hurdles pale in comparison to most private equity RE funds which is why Im assuming the $5 million cap is so low.

      • Cate

        MajorHints, I don’t understand your comment. Could you please elaborate? Are you saying the projected returns are low compared with most private equity RE funds?

        • Cate yes, the typical preferred return on a core holdings PE RE fund is 5-8% with a double digit IRR target over the life of the fund, the properties being described don’t come close to the standard institutional description. Core holdings would typically be grade A real estate that is already in truly prime areas, and while Bed-stuy is certainly up and coming it still has a way to go to be considered core which is why I assume the fund size is so small. Most funds are $100 million plus. But if they can get enough interest than more power to them, the real point is that the risk adjusted return doesn’t seem to be there in the traditional sense, but BK is obviously not traditional.

          • Cate

            Thanks, MajorHints. FWIW, the fund plans to buy only eight to 10 buildings in Bed Stuy, so perhaps that’s one reason the fund is small. The Harlem fund will be bigger. I think Seth said $10 million. That’s interesting about the Grade A real estate. That could help decrease risk.

  • this is great way to get investment exposure without writing a mid six or seven figure check!

  • Cate

    MarketWatcher2, I have removed your comment because we do not permit personal attacks on the blog. Parts of your comment were plainly false and quite possibly libelous and slanderous — the link you referred to, for example, did not say the things you claimed. Also, the only paid posts on Brownstoner are clearly marked “sponsored.”